Settlement Secured in Commercial Contract Dispute acting for Insolvency Practitioners
The Case
We represented the Administrators of an insolvent pharmaceutical company which was both the defendant and counterclaimant in a dispute over the supply of pre-packaged drugs for onward sale by the defendant to pharmacies.
The drugs were supplied by the claimant to the defendant pursuant to what was a hybrid between a supply agreement and a joint venture agreement; with the drugs being supplied at cost price and the defendant accounting to the claimant for a proportion of the overall profit.
The claimant issued a claim for alleged breach of contract against the defendant for non-payment of its invoices and alleged failure to account for the claimant’s full profit share. The defendant issued a substantial counterclaim in which it was alleged that payments had been withheld because over a period of years the claimant had overcharged the defendant for the drugs. It was further alleged that the claimant had breached an exclusivity provision in the agreement that precluded the claimant from supplying the same drugs to other distributors. It was alleged that the value of the defendant’s counterclaim was worth 4 to 5 times more than the original claim.
The case ground to a halt as a consequence of the defendant company entering into Administration.
The Challenges
It was apparent that the defendant’s counterclaim was worth substantially more than the original claim for unpaid invoices. However, after the defendant entered Administration, this presented a number of problems:
a) There was no means of funding the litigation going forward
b) The Administrators as individuals were not able to accept liability for their opponent’s adverse costs in the event the case was lost
c) Had the case continued, on account of the insolvency of the defendant, the claimant would have made an application for a substantial sum to be paid on account as security for costs, stifling the counterclaim at the outset.
How We Helped
FS Litigation was uniquely placed to pursue the case on a fully contingent (“no win, no fee”) basis.
Therefore, aside for Counsel’s fees which were funded by another creditor, the defendant was not liable to pay anything unless it succeeded in its counterclaim at trial, or a financial settlement was otherwise achieved. Were it not possible for a third party to pay Counsel’s fees, we would have explored options with specialist brokers to obtain litigation funding.
We were further able to introduce the Administrators to ATE brokers and insurers resulting in them obtaining a policy that covered the adverse costs risk and provided an anti-avoidance endorsement that meant the opponent’s costs would be covered in the event the litigation was unsuccessful. This meant that the Administrators had no personal liability and that the case could proceed without the risk of a security for costs application by the claimant.
The Outcome
The defendant had already successfully obtained summary judgment in relation to certain issues of contractual interpretation which meant we were able to make an urgent application to Court for a substantial interim payment to the defendant. This resulted in a favourable financial settlement prior to the hearing of that application.
We recognise that insolvency practitioners do not always approach litigation from a position of knowledge as directors of a company might and nor should they be expected to accept unnecessary risk. This can lead to good claims not being realised for the benefit of creditors. Happily, not in this instance.